FreeMarketDuck.com

Idaho's Weekly Journal of Local & National Commentary Week
1315

byFree Market
Duck

Federal
Reserve Commits Treason as it Asks 18 Major Banks How Much Money They Want
the Fed to Give Them to “Stimulate” the Economy: $250 Billion, $500
Billion, $1 Trillion, $2 Trillion or More…

By Tyler
Durden with comments by FM Duck

Oct 27, 2010

Does that mean
The Banks
instead of the
The Federal Reserve
will now determine U.S. Fiscal Policy?

So, why do we need a Federal Reserve central bank and, by the way, where the
Hell is President Obama, Congress and Article I, Sections 8, 9, & 10 of the
U.S. Constitution’s monetary powers?

Washington,
DC -- As if there was any doubt before which way the arrow of control, and
particularly causality, points in America's financial system, the following
stunner just released from Bloomberg confirms it once and for all.

According to Rebecca Christie and Craig Torres, the New York Fed has
issued a survey to Primary Dealers (the major banks), which asks for
suggestions on the size of QE2 (Quantitative Easing, or printing money out
of thin air) as well as the time over which it would be completed.

It also asks firms – the banks -- how often they anticipate the Fed
will re-evaluate the program, and to estimate its ultimate size.

This is nothing short of a stunning indication of three things:

That the Fed is most likely completely paralyzed due to the escalating
confrontation between the Hawks and the Doves, and that not even Federal
Reserve Chief Ben Bernanke believes he has sufficient clout to prevent
what Time magazine has dubbed a potential opening salvo into a chain of
events that
could lead to civil war.
In
effect Bernanke will use the PD's (the banks’) decision as a trump card to
the Hawks and say the market will plunge unless at least this much money
is printed,

That the Fed is effectively asking the Primary Dealers to act as
underwriters on whatever announcement the Fed will come up with, and thus
prop the market, and, most
importantly,

That the PDs will most likely demand the
highest possible amount, using Goldman's $2-4 trillion as a benchmark, and
not only front-run the ultimate issuance knowing full well what the
syndicate of 18 will decide in advance of what the final amount will be,
but will also ramp stocks on November 3 to make the actual QE announcement
seem like a surprise. This also means
that the Primary Dealers of America, which include among them such hedge
funds as Goldman Sachs, such mortgage frauds as Bank of America, such
insolvent foreign banks as Deutsche, RBS, UBS and RBS, and such
middle-market excuses for banks as Jefferies, are now in control of US monetary and,
as we explain below, fiscal policy.

It also means that the Fed has absolutely no confidence in its actions,
and, more importantly, no confidence in how its actions will be perceived by
the market which is why it is not only telegraphing its decision to the
bankers,
but is having its decision be dictated by them, an act so unconstitutional
it would be seen as treason in any non-Banana republic!

This
is the last straw confirming that the only ones left trading the market are
the Fed and the PDs, passing hot potatoes to each other, and the HFTs,
churning the shit out of everything else to pretend someone is still
trading.

And the saddest conclusion is that this is the definitive end of US
capital markets: not only is the Fed's political subordination a moot point,
but the Fed, and the middle class' purchasing power via the imminent dollar
destruction that is sure to follow as the PDs seek to obliterate their
underwater assets by raging inflation, is now effectively confirmed to be a
bitch of Lloyd Blankfein and his posse.

The official explanation for this unprecedented incursion by the banking
crime syndicate in US monetary policy is as follows:

Avoiding Disruption

Treasury officials say they want to avoid any disruption to the $8.5
trillion market in U.S. government debt, the world’s most liquid, as the Fed
weighs restarting large-scale asset purchases
[better known as monetary inflation]. The
Treasury also doesn’t want to give any impression to investors, particularly
those based overseas, that it might be coordinating with the Fed to finance
[i.e., hyper-inflate] the national
debt.

“Treasury debt-management decisions are designed to deliver the lowest
cost of borrowing over time and are entirely independent from
monetary-policy decisions made by the Federal Reserve,” Mary Miller,
assistant secretary for financial markets, said in an e-mail to Bloomberg
News yesterday. Before joining the Treasury last year, Miller was head of
global fixed-income portfolio management at T. Rowe Price Group Inc. in
Baltimore.

The Treasury is scheduled to hold its quarterly meetings with bond
dealers tomorrow, ahead of the department’s Nov. 3 refunding announcement.

Fill in the blank

The Fed has essentially given PDs (the banks) the option of $250BN, $500BN
or $1 trillion in monetization over six months. It is now absolutely clear
that the PDs will pick the biggest number possible... which incidentally
amounts to $2 trillion per year, and is precisely what Goldman's
downside case was, as we presented previously.

The New York Fed surveyed primary dealers
required
to bid in U.S. debt auctions. It asked dealers to estimate changes in
nominal and real 10-year Treasury yields “if the purchases were announced
and completed over a six-month period.” The amounts dealers can choose from
are zero, $250 billion, $500 billion and $1 trillion.

Of course, since a $2 trillion purchase over 1 year means the Fed will
have to monetize (print it up as paper dollars) every single bond issued,
the System Open Market Account (SOMA) limit will have to be raised, another
prediction we made months ago.

The Fed is unlikely to buy up the entire supply of new securities,
although it may adjust its internal guidelines of how much it can hold of
any given issue. The Fed limits itself to owning no more than 35 percent of
any specific security it holds in its System Open Market Account.
[Note by FM Duck: this is tantamount to the Fed buying back its own
counterfeited money from the banks to make it look like somebody actually
bought the central bank’s pulp fiction dollars as T-Bills. It’s a sham.
The bankers, both the Fed and the Primary Dealers, charge interest to YOU,
the public for the privilege of robbing you through this Ponzi Scheme of
monetary inflation. It’s called The National Debt.]

“Our Treasury strategists point out it could also cause pricing
distortions along the curve, if, for example, the Fed continues to target a
40 percent purchase concentration in the 6-10 year maturity bucket, as it
has in its recent purchases,” analysts at JPMorgan Chase & Co., including
Alex Roever, wrote in an Oct. 22 research report. The report predicts the
Fed will buy about $250 billion a quarter during the easing campaign.

How about buying $500 billion a quarter?

And, incidentally, since the "independent" Treasury will be
forced
to issue more debt to fill all the demand for $2 trillion over the next 12
months, as there is not enough debt in the pipeline to fill $2TN
worth of demand and prevent the entire curve pancaking at zero (i.e., the 30
year yielding precisely 0.001%) it also means that the government will be forced to come up with more deficit programs, which also means
that primary dealers will now also determine US fiscal policy.

Which begs the question, why is anyone pretending that the political
vote on November 2 matters at all?

Below are the 18 banks that, in a completely separate vote, will
henceforth rule America, regardless of what particular puppets end up in the
Congress and Senate: